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1) You bought $150 000 in 364-day T-bills
1) You bought $150 000 in 364-day T-bills. The T-bills was available at a rate of 4.432% simple discount. If you paid $148 811.24 for the T-bills, how many days before maturity did you buy it?
2) Alphabet Inc. is planning to pay a quarterly dividend of $0.80 on its perpetual preferred share. The market requires a dividend yield of 4.909% compounded annually on preferred shares of similar risks. What is the fair market value of its perpetual preferred share just after payment of a dividend at the end of the quarter (ordinary)?
Expert Solution
1) Computation of the number of days:-
Discount = $150,000 - $148,811.24
= $1,188.76
Discount = Amount of T-bill * Rate * Time / 364
$1,188.76 = $150,000 * 4.432% * Time / 364
Time = $1,188.76 * 364 / ($150,000 * 4.432%)
= $432,708.64 / $6,648
= 65.09 days Or 65 days
2) Computation of the fair market value:-
Fair market value = Preferred dividend / Dividend yield
= $0.80 * 4 / 4.909%
= $3.20 / 4.909%
= $65.19
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